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Corporate Officers and Directors Personally Liable for Unpaid Wages

Winter 2007Cole Schotz DocketAttorneys: Wendy F. Klein and Randi W. Kochman

Being the officer or director of a corporation surely has its benefits, but it also carries with it certain obligations of which the officeholder may be unaware, including individual responsibility for unpaid wages.

Under New Jersey’s Wage Payment Law, an “employer” must pay the full amount of wages due to its employees at least twice during a calendar month and penalties are imposed for failure to do so.  An employer may establish regular paydays less frequently for executive, supervisory and other special classifications of employees, provided they are paid at least once a month on a regularly established schedule.  Under the statute, an “employer” is defined to include any “individual, partnership, association, joint stock company, trust, corporation,…or successor of any of the same, employing any person in this State.”  Significantly, the statute then goes on to provide that for purposes of the act, “the officers of a corporation and any agents having the management of such corporation shall be deemed to be the employers of the employees of the corporation.” (emphasis added).

New Jersey’s Wage and Hour Law, which governs minimum wages and overtime pay, also defines “employer” to include individuals, stating:  “Employer” includes “any individual, partnership, association, corporation, or any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee.”  (emphasis added).  Individual officers and agents are therefore also potentially liable for unpaid overtime pay and any wages due to meet the minimum wage level.

Any doubt whether the Wage Payment Law was intended to impose personal liability for wages on management was eliminated in the 1999 New Jersey case of Mulford v. Computer Leasing, Inc.  In Mulford, an employee who failed to receive commission payments sued not only his employer, but its shareholders, directors, and officers.  The court hearing the action reached four significant conclusions regarding New Jersey’s Wage Payment Law.  First, the court concluded that the statute applied to the employer even though it was a New York corporation because its employees worked out of and resided in New Jersey.  Second, the court held that by deeming managing officers of a corporation to be employers, the statute intended to impose personal liability on them for unpaid wages.  Third, the court concluded that the statute authorizes a private action by the employee against the employer and its managing officers for unpaid wages, in addition to an action by the New Jersey Department of Labor.  And fourth, the court determined under New Jersey law that there can be no figurehead directors and that all corporate directors, regardless of their actual functions, are deemed responsible for managing the business and affairs of a corporation, and, therefore, constitute employers under New Jersey’s wage statute.  In a small acknowledgment of the corporation’s primary responsibility for wages, the Mulford court concluded that the judgment against the officers and directors for more than $800,000 in unpaid commissions and interest would only be enforced to the extent the corporation failed to pay the judgment within 11 days.

All officers and directors should also be aware that “employers” who “knowingly and willfully” violate any provision of the Wage Payment Law or the Wage and Hour Law are guilty of a disorderly persons offense and subject to a fine of not less than $100 and not more than $1,000, with each day during which a violation continues constituting a separate offense.  Violations of the Wage and Hour Law may also be met with imprisonment. 

New Jersey is not alone in imposing liability for unpaid wages beyond the corporate entity.  New York Business Corporation Law § 630 provides that the ten largest shareholders of every privately held corporation shall be personally liable for wages or salaries due to any of its employees.  The New Jersey and New York wage statutes serve as a reminder that corporate officeholders and controlling shareholders cannot stick their heads in the sand, but must ensure that their corporations are meeting their responsibilities to their employees.  Failure to do so can result in an officer or shareholder not only signing an employee’s paycheck, but personally funding it as well.

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